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Why Is ACV Relevant Today? Remains in virtually all policies as a Settlement Option When is it a settlement option? – When Insured chooses – When repair/replacement hasnt begun in timely matter Bottom Line… Risk Managers Need To Be Well-Familiar with ACV & when it should be used as an option! 3

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ACTUAL CASH VALUE (ACV) Y ou may need to know… Disclaimer Not an ACV Expert Not representing Clients (past or future) Not representing my firm Maybe not even representing me (in the future) Any Resemblance to Real Life Is Purely Accidental! 6

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Practically Thinking about ACV (Non-lawyer viewpoint) Market Value usually = Fair Market Value FMV isHighest price available in an open market, between prudent parties both willing to transact, in terms of cash, at a point in time What about Value to Owner Considerations?? Refers to all economic (and non-economic) benefits that accrue from ownership – e.g. Owner may generate higher benefits due to personal contacts, etc. 8

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Practically Thinking about ACV (Non-lawyer viewpoint) ACV = Replacement Value Less Depreciation? (but if its a partial loss maybe no depreciation – question is would the repair leave you better off?) Incidentally, What Is Depreciation? Is Depreciation the Flip side of Betterment? Maybe… 9

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What Depreciation Is – or – May Be… We can probably safely say Depreciation includes Physical Depreciation 17

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Illustrations… Physical Depreciation 18

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Quantifying Physical Depreciation Assuming you have a total loss… Consider the Whole Consider the Parts – are you really better off with physically new? Remember Not Accounting or Tax May need some outside assistance here – asset or equipment appraisers 19

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What Depreciation Is – or – May Be… Depreciation May (but not necessarily) also include… – Obsolescence Technical Functional Economic What the heck are these things? 20

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Illustrations… Technical Obsolescence 21

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Quantifying Technical Obsolescence Consider Efficiency – better with old or new? Technological change does not mean technological obsolescence Consult your own Operators Is there Negative Technical Obsolescence? – New replacement requires other upgrades? – Old equipment was grandfathered 22

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Illustrations… Functional Obsolescence 23

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Quantifying Functional Obsolescence Can be thought of as Capacity and Capability Function or Capacity Not Being Used Or – No longer works Some Defensive Arguments: – Long term v. Current – Demand goes up and down – Frequent v. Infrequent – Still needed sometimes – Function was still valuable to potential buyer 24

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Economic Obsolescence More Externally-Driven Declines in Value -- Probably the most unclear… Does your asset make you money? Would your asset make someone else more money? Will your asset make more money than its replacement cost over time? 27